Nike Hurt by Rift With Foot Locker

As Wall Street reacted negatively Friday to news that Nike Inc.’s continuing spat with its biggest customer was hurting orders, analysts said the athletic shoe maker and Foot Locker Inc. should put a sock in it and make up.

Shares of Nike fell $3.85, or 6.8%, to $53.08 on the New York Stock Exchange on Friday, one day after Nike said that partly because of Foot Locker, U.S. orders for footwear and apparel for delivery from June to November were down 10% compared with the year-earlier period.

The dip refocused attention on the chilly relations between Beaverton, Ore.-based Nike and the New York-based footwear retail chain. They took a bad turn last year when Foot Locker decided to sell less expensive Nike items, scaling back stocks of shoes going for more than $120 a pair. Nike, in response, stopped supplying Foot Locker with such popular sneakers as Jordan IX.

Some analysts say it’s time for Nike and Foot Locker to mend their rift.

“They’re clearly joined at the hips in terms of overall performance,” said John Shanley, a Wells Fargo Securities analyst, who reiterated a “hold” rating on Nike’s stock Friday. “I think most in the investment community would encourage both companies to work this out.”

Also Friday, a Merrill Lynch analyst downgraded Nike’s stock to “neutral” from “buy.”

“Although it’s premature to say the Foot Locker relationship is getting materially worse, it doesn’t appear to be getting better, raising the specter of more negative news flow,” said Virginia Genereux, who cut her fiscal 2004 earnings estimate for Nike by 5 cents to $3.18 a share.

In a conference call with analysts Thursday, Nike’s co-president, Charles Denson, said U.S. footwear orders from retailers other than Foot Locker were up by 3% to 4% for delivery from June to November.

The company did not reveal how much Foot Locker ordered or by what percentage the retailer’s order was down compared with last year. Foot Locker said in a recent Securities and Exchange Commission filing that 32% to 38% of its purchases this year probably would be from Nike, down from 44% last year.

Nike said worldwide orders for all products jumped 4.4% to $4.9 billion.

The firm said sales in the fourth quarter ended May 31 rose 11% to $3 billion, while U.S. sales of athletic shoes fell 3%.

Its quarterly net income climbed 18% to $246.2 million, or 92 cents a share, compared with $208.4 million, or 77 cents, in the same period a year earlier.

Nike executives said they were optimistic about a decision to redirect distribution of Nike’s high-end footwear, focusing on retailers other than Foot Locker.

Analysts said Wall Street was surprised at the effect Foot Locker had on Nike’s orders.

“Foot Locker is an important point of distribution in the U.S. market,” said Robert Toomey, an analyst with RBC Dain Rauscher. “They apparently haven’t been able to ramp up alternative points of distribution as fast as they thought.”

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Bloomberg News was used in compiling this report.